* Arabica premium over robusta at 2-year high
* Raw sugar falls from 38.2 pct Fibonacci retracement
* Industry buying underpins cocoa (Updates closing coffee/sugar prices)
By Marcy Nicholson and Sarah McFarlane
NEW YORK/LONDON, March 6 (Reuters) - Arabica coffee futures on ICE remained volatile on Thursday, dropping from the previous session's steep two-year high on profit-taking as parts of top grower Brazil received much-needed rain, though forecasts for dry weather limited losses.
Raw sugar on ICE Futures U.S. pared gains after rising to a four-month high and hitting chart-based resistance, while cocoa was little changed.
Unseasonably dry Brazilian weather in January and February, and consequential production concerns have propelled arabica coffee prices up by around 76 percent since the start of the year, taking dealers by surprise. On Wednesday, the market closed above the psychological $2 per lb level for the first time in two years.
"We've gone over $2 now and we're seeing some specs willing to take some money off here. Commercials are more willing to sell here as well, and we're seeing that reflected," said Jack Scoville, a vice president at Price Futures Group in Chicago.
ICE second-month arabica futures fell 6.85 cents, or 3.4 percent, to close at $1.9555 per lb, below the two-year high of $2.0410 hit the previous session. The contract remained overbought at around 74 on the 14-day relative strength index. That was down from 88 reached on Monday, the highest level since 1994.
May Liffe robusta coffee ended up $18, or 0.9 percent, at $2,083 per tonne, after touching a one-year peak of $2,136 per tonne on Tuesday.
Robusta coffee prices have also jumped, although their move has not been of the same magnitude, with a gain of around 25 percent since the start of the year. This has widened the price difference between the two coffee varieties, with the arabica premium up for the fifth straight day around 98 cents per lb, the highest in two years.
This could encourage roasters to switch to more of the cheaper, lower-quality robusta.
"London (robusta coffee) as a value trade makes a lot of sense," said Alex Parry, coffee broker at ABN AMRO.
"It leaves industry going, 'If we can't buy arabica, let's buy robusta, because the supply and demand picture is going to change if prices stay where they are,'" Parry added.
Sugar futures were firm after trading on both sides of unchanged and hitting a four-month high. The benchmark contract faced resistance around 18.43 cents a lb, the 38.3 percent Fibonacci retracement level from the 2012 highs. Prices were underpinned by the dry weather in top grower Brazil, although analysts warned that the rally could lose momentum as short covering peters out.
"We are still wary that speculative short covering has also had a significant role to play in pushing values higher," said Luke Mathews, commodities strategist at Commonwealth Bank of Australia.
"History shows that short-covering rallies do come to end, often abruptly."
May raw sugar on ICE finished down 0.09 cent, or 0.5 percent, at 18.32 cents a lb, having earlier peaked at 18.47 cents, its highest level since the end of October. Total open interest rose for the first time in eight sessions on Wednesday, by 5,337 lots to 793,290 lots, ICE data showed.
Technical support was seen at 17.79 cents, one broker said.
May white sugar futures on Liffe settled up 60 cents, or 0.1 percent, at $485.70 per tonne.
In cocoa, ICE May cocoa futures closed down $9, or 0.3 percent, at $2,961 per tonne.
Dealers said that industry buying at levels just below the market was likely to keep prices underpinned.
"We have had dips, but they have been short-lived as industry are looking at any sizeable decline as an opportunity to reload their cover," a London-based broker said.
May cocoa futures on Liffe settled down 4 pounds, or 0.2 percent, at 1,845 pounds a tonne. ($1 = 0.5982 British pounds) (Additional reporting by Chris Prentice in New York; editing by Keiron Henderson, Jane Baird, Matthew Lewis and Marguerita Choy)